Long ago, J. P. Morgan was asked what he thought the stock market would do. "It will fluctuate," he replied. But in 1987, the market did more than just fluctuate; 50-point daily swings in the Dow Jones industrial average eventually became ho-hum events.
As 1987 dawned, despite a 4-year-old bull market, there was general optimism that the good times would continue. Indeed, in the first four months of the year, the Dow average surpassed five new century marks and kept climbing until hitting its high-water mark of 2,722.42 on Aug. 25. At that point, the Dow was up a breathtaking 44% for the year.
Before long, however, things were turned upside down. Along came Oct. 19, a.k.a. Black Monday, and the Dow suffered its staggering 508-point loss.
As the following month-by-month Dow score card reveals, it is far easier to conduct a post-mortem than it is to predict a disaster.
January, Close: 2158.04, Up: 262.09
5 The Dow sets the first of many records in 1987, closing at a record 1,971.32 on a record 44.01-point climb. Institutional buyers load up after the tax-related selloff in December. Domestic oil prices dip below $18 a barrel. Market timer Robert R. Prechter Jr., who puts out the Elliott Wave Theorist newsletter, tells Barron's, "The third and last wave is ahead of us. And in terms of Dow points will turn out to be the most spectacular of all. That's the one I expect to carry us up into that 3,600-plus area."
8 The Dow closes above the 2,000 mark for the first time at 2,002.25. Barron's editor Alan Abelson would explain the surge: "Our own conviction is that Wall Street was celebrating the fact that no one had been indicted for at least three days. The other equally compelling theory is that as part of his settlement with the SEC, Ivan Boesky agreed to put in 500 hours at hard labor, carrying rumors and lifting prices."
21 After a record 13 consecutive up closes, the Dow finally loses ground, down 10.40 points to 2,094.47. 22 "American stocks look very attractive," says Sado Suzuki, chief investment strategist for Japan's Daiwa Securities. The Dow jumps a record 51.60 points.
23 In an extraordinary 70 minutes of Friday afternoon trading, the Dow plummets 115 points, finishing the day down 44.15 points on record Big Board volume of 302 million shares. "I hadn't expected anything this insane," says economist John Kenneth Galbraith. But Shearson Lehman Bros. senior trader Alex Tellerico blamed much of the loss on the fact that many Wall Street traders had to stay in hotels during the week because of a commuter railroad strike. "We've got guys who haven't been home all week," he says.
February, Close: 2223.99, Up: 65.95
2 Business Week's cover story is, "Oh, That Market." The magazine suggests, "Relax: Stocks aren't out of touch with reality--they're adjusting to it." Alan Greenspan, president of the consulting firm Townsend-Greenspan & Co., expects earnings per share for the 500 companies on the Standard & Poor's index to rise at least 10% in 1987 and in 1988. "A significant valuation has not been fully appreciated by investors," he says. The Dow closes up 21.38 points.
5 The Dow closes above 2,200 for the first time at 2,201.49. The Mutual Fund Forecaster newsletter advises, "Our econometric forecasting model shows that the bull market still has a green light," and predicts a 19% gain for the S&P 500 index in the next 12 months. During the first week of February, the median price-earnings ratio (that is, the ratio of share prices to annual earnings per share) of big board stocks is 17.
23 Charles Allmon, chairman of Growth Stock Outlook Trust, a $140-million mutual fund specializing in smaller companies, remains bearish. "We're looking at excesses in the Dow Jones averages that we've only seen four or five times in the last 65 years," he tells Barron's. "I think it more closely parallels 1937, when the Dow was off 48% in about a year. We could see something like that. . . . But I don't think we're going to see the old type of bear market, where it runs on for a year and a half or two years. It's going to be much more rapid because of the volatility brought to the market by program trading." The Dow closes off 18.7 points.
March, Close: 2304.69, Up: 80.7
20 The Dow cracks the 2,300 barrier, closing at 2,333.52.
23 Business Week reports that John J. Phelan Jr., chairman of the New York Stock Exchange, is worried about computer programmed trading. "Phelan fears that program trading could trigger an uncontrollable 'financial meltdown,' in which the stock market could sink 150, 200 or more points in a day." The Dow closes up 30.26 points.